How Blockchain Could Affect Loans

Blockchain is a digitalized system or ledger of all cryptocurrency transactions, such as the ever-popular bitcoin. It allows for digital currency transactions to be recorded and kept track of without the need for central recordkeeping. The technology is mainly used to verify transactions using cryptocurrencies, but now it is having much wider and more commercial applications.

One of the major ones is with the banking sector, as blockchain proves something of both a threat and an opportunity. There are a few ways it is already beginning to have an impact, especially for loans.

Blockchain vs Banks

Banks cannot stop blockchain, as its technology allows for the removal of centralised banking institutions. However, rather than battle with blockchain, many banks are now aiming to adapt and implement blockchain technology into their future use.

According to one recent study by the Cambridge Centre for Alternative Finance, 80% of central banks around the world are in favour of blockchain technology. Of these, about one-fifth said they will be using blockchain technology by 2019 and 40% will within a decade. These are set to be used for permissions platforms or protocols as well as for bitcoin and other cryptocurrencies.

Syndicated Lending

Already seven of the world’s top banks have joined forces to develop a blockchain-powered marketplace for syndicated loans. These include BNP Paribas, HSBC, ING, BNY Mellon and State Street who have partnered with blockchain consortium R3 and financial software company Finastra to develop the service.

The aim of the system is to reduce the cost and improve the efficiency and transparency of loans with multiple lenders. One of the problems with the loan market has been with transparency and the distribution of information, which this new, blockchain-powered model aims to tackle.

Personal Loans

Currently, the best way to get a personal loan is through an official financial lender or bank. However, with the rise in popularity of alternative finance, many people and companies are looking elsewhere. Blockchain technology allows lending to be moved into a peer-to-peer network, offering a technological solution to the issues of trust and transparency that can hamper some personal loans.

Credit card providers and more are also being put under pressure by blockchain based developers too. Charging lower interest to borrowers is always going to be a winner with individuals and groups seeking a loan, so unless banks adopt such technology they could fall behind.

Blockchain is already making waves in the banking and loans sector, with more changes expected in the coming years.